Company inspection
Experts from the Lower Silesian KAS carried out a customs and tax inspection at an IT company. It provided “subsidiaries” in the Czech Republic and Poland (related entities) with payment obligation security, arising from purchases of goods with deferred payment terms, as well as bank guarantees, free of charge.
Such services are paid for under market conditions and constitute taxable revenue.
Company understated revenue by over PLN 6.1 million
During the inspection, the value of the free-of-charge benefits provided by the company to related entities in connection with guarantees and sureties granted to them was estimated at over PLN 6.1 million. This revenue was not reported, resulting in an understatement of the tax base for corporate income tax (CIT) and the tax due.
The company filed an amended CIT return and paid over PLN 1.4 million in tax, including interest.
OECD guidelines
The analyses were conducted on the basis of Polish transfer pricing regulations. The OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations were used.
The OECD Guidelines provide guidance on applying the arm’s-length principle, which is an international standard for valuing transactions between related entities for income tax purposes. They constitute a collection of good practices and a point of reference used to choose the appropriate interpretive approach to legal provisions concerning transfer pricing.